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Market Structure and the Penetration of Alternative Energy Technologies

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  • Tsur, Yacov
  • Zemel, Amos
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    Abstract

    Energy market prices ignore external effects, hence miss-allocate energy generation between (polluting) fossil fuels and (clean) solar technologies. Correcting the failure requires understanding the market allocation forces at hand. An important feature of solar energy is that its cost of supply is predominantly due to upfront investments in capital infrastructure (rather than to the actual supply rate) and this feature has far reaching implications for the market allocation outcome. Studying the market allocation process, we specify the conditions under which solar technologies penetrate the energy sector. The framework is then used to analyze policy regulation in the form of taxing fossil energy and subsidizing investments in solar energy. The first policy measure addresses undesirable environmental effects associated with the use of fossil fuels and the second internalizes the benefits of learning by doing in the solar industry. Under certain conditions, a temporary subsidy on solar energy investments gives rise to a flourishing, self-sustained solar industry that will (eventually) drive fossil energy out of production.

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    Bibliographic Info

    Paper provided by Hebrew University of Jerusalem, Department of Agricultural Economics and Management in its series Discussion Papers with number 47174.

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    Date of creation: 31 Jan 2009
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    Handle: RePEc:ags:huaedp:47174

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    Postal: Faculty of Agriculture, Food and Environmental Quality Sciences Hebrew University of Jerusalem, P.O. Box 12, Rehovot 76100
    Phone: 08-9481230
    Fax: 08-9466267
    Web page: http://departments.agri.huji.ac.il/economics/indexe.html
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    Related research

    Keywords: energy; solar technologies; fossil fuels; price thresholds; regulation; environmental damage; learning by doing; Resource /Energy Economics and Policy; Marketing; C61; Q42; Q58;

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    References

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    1. Yacov Tsur & Amos Zemel, 2008. "Regulating environmental threats," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 39(3), pages 297-310, March.
    2. Tsur, Yacov & Zemel, Amos, 2005. "Scarcity, growth and R&D," Journal of Environmental Economics and Management, Elsevier, vol. 49(3), pages 484-499, May.
    3. Yacov Tsur & Amos Zemel, 2009. "Endogenous Discounting and Climate Policy," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 44(4), pages 507-520, December.
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    Cited by:
    1. Daiju Narita, 2010. "Climate Policy, Technology Choice, and Multiple Equilibria in A Developing Economy," Kiel Working Papers 1590, Kiel Institute for the World Economy.

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